Sales and Use Tax TAA 12A-027 Pass Through Utility Charge
QUESTION 1: The issue is whether utility charges, passed on to a lessee of real property, constitute taxable rental consideration pursuant to section 212.031, F.S.
ANSWER: The utility charges, passed on to the lessee of real property, constitute taxable rental consideration pursuant to section 212.031, F.S.
November 29, 2012
Re: Technical Assistance Advisement - 12A-027
Sales and Use Tax - Pass Through Utility Charge
Section 212.031, Florida Statutes (F.S.);
Rule 12A-1.070, Florida Administrative Code (F.A.C.)
XXX(“the Taxpayer”)
FEI #: XXX
Dear XXX:
This is in response to your letter dated XXX, requesting this Department’s issuance of a Technical Assistance Advisement (“TAA”) pursuant to section 213.22, F.S., and Rule Chapter 12-11, F.A.C., regarding the taxability of certain utility charges passed on to lessees pursuant to a real property lease. An examination of your letter has established that you have complied with the statutory and regulatory requirements for issuance of a TAA. Therefore, the Department is hereby granting your request for a TAA.
ISSUE I
The issue is whether utility charges, passed on to a lessee of real property, constitute taxable rental consideration pursuant to section 212.031, F.S.
FACTS
The Taxpayer is a church with an exemption certificate. Accordingly, the Taxpayer does not pay sales tax on its purchases of utilities for the church. Taxpayer leases certain areas of the church property in Florida to a for-profit corporation. The Taxpayer separately states and bills the lessee for sales tax on utility charges, as part of the total rental consideration for the use of the property.
The tenant is refusing to pay the tax associated with these charges. Taxpayer requests advice on whether the utility charge is taxable as part of the consideration paid for the use of real property.
The lease agreement, termed Commercial Lease (the Lease), provides in Article 3(A), “Lessee shall be responsible for utilities and garbage collections attributable to its use of the Premises on a pro rata basis as computed and invoiced by the Lessor.”
TAXPAYER POSITION
It is the Taxpayer’s position that the utility pass through charges are subject to sales and use tax.
The Taxpayer also requests that the Department charge the lessee for any interest and penalty due to the lessee’s refusal to pay the tax.
LAW AND DISCUSSION
Section 212.031, Florida Statute (F.S.), provides that every person who engages in the business of renting, leasing, letting, or granting a license for the use of any real property is exercising a taxable privilege. This privilege is taxable at a rate of 6 percent of the total consideration due and payable by the tenant for the use of real property for any purpose. S. 212.031(1)(c), F.S., Rule 12A1.070(4)(b), F.A.C.
As a general rule, charges for utilities that must be paid as "additional rent" by the lessee to the lessor for the right or privilege to use or occupy real property are subject to tax. See Rule 12A1.070(4), F.A.C. However, s. 212.031(7), F.S., provides an exemption for utility charges "paid by a tenant to the lessor and which are part of a payment for the privilege or right to use or occupy real property . . . if the lessor has paid sales tax on the purchase of such utilities and the charges billed by the lessor to the tenant are separately stated and at the same or a lower price than those paid by the lessor."
Pursuant to section 212.031(7), F.S., and Rule 12A-1.070(4)(e), F.A.C, for pass through utility charges to be exempt, the following three requirements must be met:
- The lessor must have already paid sales tax on the purchase of the utilities from the utility provider;
- The utilities billed by the lessor to the tenant must be separately stated on the lessor's invoice to the tenant; and
- The utility charges billed to the tenant must be at the same or lower price as those billed by the utility company to the lessor. In the present case, the lessor did not pay sales tax on the purchase of the utilities from the utility provider; hence, the pass through utility charges to the tenant are not exempt from sales tax under s.212.031(7), F.S. The charge for utilities to the tenant is subject to sales tax as part of the consideration paid for the use of the real property, pursuant to s. 212.031(1)(c), F.S. and Rule 12A1.070(4)(e), F.A.C. With regard to your request that the Department collect the interest and penalty from the lessee, please be advised both the lessee and lessor are co-liable for any sales and use tax due the State of Florida. While the tenant is required to pay the tax to the Taxpayer, the Taxpayer is required to collect and remit such tax. See s. 212.031(3), F.S.
RESPONSE
The utility charges, passed on to the lessee of real property, constitute taxable rental consideration pursuant to section 212.031, F.S.
This response constitutes a Technical Assistance Advisement under Section 213.22, F.S., which is binding on the Department only under the facts and circumstances described in the request for this advice as specified in Section 213.22, F.S. Our response is predicated on those facts and the specific situation summarized above. You are advised that subsequent statutory or administrative rule changes, or judicial interpretations of the statutes or rules, upon which this advice is based, may subject similar future transactions to a different treatment than expressed in this response.
You are further advised that this response, your request and related backup documents are public records under Chapter 119, F.S., and are subject to disclosure to the public under the conditions of Section 213.22, F.S. Confidential information must be deleted before public disclosure. In an effort to protect confidentiality, we request you provide the undersigned with an edited copy of your request for Technical Assistance Advisement, the backup material and this response, deleting names, addresses and any other details which might lead to identification of the taxpayer. Your response should be received by the Department within 15 days of the date of this letter.
Sincerely,
R. Clay Brower
Revenue Program Administrator
Technical Assistance and Dispute Resolution
(850) 717-6306
RCB/Ctrl# 133564
